India's Unified Payments Interface (UPI) is set for a revised Merchant Discount Rate (MDR) framework from October 15, 2026, introducing a 0.4% charge on specified Person-to-Merchant (P2M) transactions above ₹2,000. The charge will apply to merchants rather than consumers, while person-to-person UPI transfers will remain free.
The National Payments Corporation of India (NPCI) has stated that the new framework is intended to support the long-term sustainability, security and expansion of the UPI payments ecosystem. Under the framework, the MDR on eligible transactions will be capped at ₹300 per transaction.
Consumers Will Continue to Use UPI Without Transaction Charges
The revised framework does not introduce a direct UPI transaction fee for consumers. Person-to-person payments remain outside the MDR framework regardless of the amount transferred, while merchant payments up to ₹2,000 also remain free from MDR.
For example, when a customer makes an eligible merchant payment above ₹2,000, the applicable MDR is charged within the payment ecosystem rather than being added directly to the customer's payment amount. The Finance Ministry has advised banks to ensure that merchants do not pass the MDR on to consumers.
0.4% MDR Applies to Eligible Merchant Payments
Under the NPCI framework, the standard MDR for specified P2M UPI transactions above ₹2,000 will be 0.4%, with a maximum charge of ₹300 for transactions of ₹75,000 or more. NPCI's FAQ states that transactions up to ₹2,000 account for more than 95% of UPI P2M transaction volume and remain outside the new MDR.
Certain sectors have a separate flat MDR structure. Payments above ₹2,000 involving categories such as railways, telecommunications, insurance and fuel will attract a flat charge of ₹5, according to the reported framework.
What the New Framework Means for Merchants
The revised structure introduces a cost for certain higher-value merchant transactions while preserving zero MDR for qualifying lower-value payments and small merchants under applicable conditions.
NPCI has said the revenue generated through MDR will be distributed among participants in the payment ecosystem, including banks and payment applications, rather than being collected by the government as a tax. The framework is also intended to support investments in payment infrastructure, cybersecurity, resilience and innovation.
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UPI's Digital Payment Model Enters a New Phase
The revised MDR framework marks a change in the economics of UPI merchant payments while keeping the consumer-facing payment experience largely unchanged. Low-value transactions, person-to-person transfers and eligible small-merchant payments continue to receive protection under the framework.
The new provisions will take effect on October 15, 2026, giving banks, payment aggregators, fintech platforms and merchants time to prepare for the updated MDR structure.